<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                               _________________

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1997
                          Commission File No. 0-13323
                               _________________

                    NEW ENGLAND LIFE PENSION PROPERTIES II;
                       A REAL ESTATE LIMITED PARTNERSHIP
            (Exact name of registrant as specified in its charter)

        Massachusetts                                    04-2803902
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)

   225 Franklin Street, 25th Floor
    Boston, Massachusetts                                  02110
(Address of principal executive offices)                 (Zip Code)

              Registrant's telephone number, including area code:
                                (617) 261-9000

          Securities registered pursuant to Section 12(b) of the Act:
                                     None

          Securities registered pursuant to Section 12(g) of the Act:
                     Units of Limited Partnership Interest

                               (Title of Class)

          Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                              Yes  X     No  ___
                                  ---

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]

          No voting stock is held by nonaffiliates of the Registrant.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None


<PAGE>

                                    PART I
                                    ------

Item 1.  Business
         --------

    New England Life Pension Properties II; A Real Estate Limited Partnership
(the "Partnership") was organized under the Uniform Limited Partnership Act of
the Commonwealth of Massachusetts on September 15, 1983, to invest primarily in
newly constructed and existing income-producing real properties.

    The Partnership was initially capitalized with contributions of $2,000 from
Copley Properties Company II, Inc. (the "General Partner") and $10,000 from
NELRECO Troy, Inc. (the "Initial Limited Partner").  The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on September 21, 1983, with respect to a
public offering of 50,000 units of limited partnership interest at a purchase
price of $1,000 per unit (the "Units") with an option to sell up to an
additional 60,000 Units (an aggregate of $110,000,000).  The Registration
Statement was declared effective on November 23, 1983.

    The first sale of Units occurred on June 15, 1984, at which time the Initial
Limited Partner withdrew its contribution from the Partnership.  Investors were
admitted to the Partnership thereafter at monthly closings; the offering of
Units terminated on November 23, 1984, and the last group of initial investors
was admitted to the Partnership on November 30, 1984.  As of November 30, 1984,
a total of 39,917 Units had been sold, a total of 5,980 investors had been
admitted as limited partners (the "Limited Partners") and a total of $39,654,700
had been contributed to the capital of the Partnership.  The remaining 70,083
units were de-registered on November 30, 1984.

    The Partnership has no employees. Services are performed for the Partnership
by the General Partner and affiliates of the General Partner.

    As of December 31, 1997, the Partnership owned the one real estate
investment described in E. below.  In December 1993, it sold its second
investment, an apartment complex in Grand Rapids, Michigan, which resulted in a
capital distribution of $50.11 per Unit.  In 1996 the Partnership sold its third
and fourth investments, two industrial buildings in Elkridge, Maryland and a
research and development building in Los Angeles County, California.  These
sales resulted in a capital distribution of $123.85 per Unit on January 30,
1997.  In 1997 the partnership sold it's fifth and sixth investments, Willows
Shopping Center in Concord, California and Columbia Warehouse, a research and
development building, in Columbia, Maryland.  These sales resulted in capital
distributions of $21,037,855 ($527.04 per Unit) and $1,672,123 ($41.89 per Unit)
on October 30, 1997 and November 25, 1997 respectively.

    In the opinion of the General Partner of the Partnership, the property is
adequately covered by insurance.

    A.    Light Industrial Facilities in Elkridge, Maryland ("Elkridge")
          --------------------------------------------------------------

    In 1984 the Partnership acquired two adjacent parcels of land containing an
aggregate of approximately five acres located in Elkridge, Maryland, for
$362,500 and leased them to Dorsey Associates.  Situated on the land were two
light industrial buildings.  In 1984 the Partnership also made a $2,062,500 non-
recourse mortgage loan to Dorsey Associates, which was secured by a first
mortgage of the buildings and of the leasehold interest in the land.

    On May 14, 1996, one of the buildings was sold and on December 20, 1996 the
second building was sold.  The Partnership received proceeds of $2,234,022 in
satisfaction of the mortgage loan and ground lease, of which $2,233,755 was
distributed to the Limited Partners as a capital distribution in the amount of
$55.96 per Unit on January 30, 1997.

    B.    Industrial/Research and Development Building in Columbia, Maryland
          ------------------------------------------------------------------
("Oakland")
-----------

    The Partnership previously owned a ground leasehold interest in a 2.5
acre parcel of land located in Columbia, Maryland, which was subleased to
Columbia Warehouse Limited Partnership ("CWLP"). Situated on the land was a one-
story light industrial building. The Partnership purchased the ground leasehold
interest in 1984 for $137,500. The ground lease, as amended on June 1, 1989, had
an unexpired term of approximately 75 years. Annual rental under the ground
lease was approximately $3,420 and was adjusted at five-year intervals. The
Partnership received an annual rent of $16,500 from the sublessee, plus an
annual percentage rent equal to 75% of gross revenues from the rental of the
building in excess of a base amount. The Partnership was entitled to

                                       2
<PAGE>

receive 75% of the net proceeds from the sale of the entire property after it
recovered its investment in the land and the mortgage loan described below.

    In 1984 the Partnership also made a $1,062,500 non-recourse mortgage loan to
CWLP that matured on June 29, 1994.  The loan was secured by a first mortgage of
the building and of the leasehold interest in the land.  Interest only was
payable monthly at the rate of 12% per annum.

    In October 1996, the Partnership reached an agreement in principle with the
borrower on the mortgage loan, whereby the maturity date would be extended to
December 1997.  In addition, the fixed interest and ground rental payments would
be reduced, but the Partnership's rate of participation in revenue from the
underlying property would be increased, effective January 1, 1997.  Further, the
Partnership would be able to cause a sale of the property.

    On October 27, 1997, the Partnership sold its collective interest in
Columbia Warehouse.  The Partnership received proceeds of $1,671,200, of which
$1,672,123 was distributed to the Limited Partners, as a capital distribution
from sale proceeds and reserves, in the amount of $41.89 per Unit on November
25, 1997.

    C.    Shopping Center in Concord, California ("Willows Shopping Center")
          ------------------------------------------------------------------

    On July 30, 1984, the Partnership and an affiliate of the Partnership (the
"Affiliate") jointly made land purchase-leaseback and leasehold mortgage loan
investments aggregating $15,719,317 in a 24.8 acre shopping center known as The
Willows Shopping Center in Concord, California.  The Partnership's share of
these investments aggregated $11,789,488, giving the Partnership a 75% interest
in each component of the investment held in common with the Affiliate.  The
investments entitled the Partnership and the Affiliate jointly to receive an
annual interest return of 13% on the $10,719,317 ten-year mortgage, together
with an annual fixed rent under the ground lease equal to a 12.2% return on
the $5,000,000 land purchase price plus an annual percentage rent equal to 50%
of the ground tenant's annual gross revenues in excess of specified base
amounts.

    On August 15, 1985, the Partnership and the Affiliate consented to a sale by
the ground tenant, Willows Concord Venture ("Willows Concord"), of the ground
tenant's ownership interest in the buildings and leasehold interest in the land
to an affiliate of VMS Realty, Inc.  In conjunction with the sale, the ground
lease was amended to provide that the Partnership and the Affiliate would no
longer participate in excess rental revenues from the Shopping Center or in net
appreciation from the sale of the property.  The mortgage loan was also amended
to increase the principal amount by $3,880,683 to $14,600,000, to extend the
maturity date one year to August, 1995, and to lower the interest rate from 13%
per annum to a stepped rate beginning at 9% per annum and increasing to 12% over
six years.  Under the terms of the original ground lease, the joint ground
lessors were entitled to 50% of the net proceeds from a sale.  The Partnership
received cash of $3,215,625 and an interest in the incremental mortgage loan
amount equal to $2,910,512, 50% of which was payable to the former ground lessee
upon full payment of the loan principal by the new mortgagor.  The joint
mortgagees also entered into a Collection and Disbursement Agreement pursuant to
which Willows Concord was entitled to share in 50% of interest paid under the
new mortgage note in excess of the interest that would have been payable under
the original note.

    The Partnership and the Affiliate had not received interest payments
currently on the mortgage loan since the payment due for March, 1990, and as a
result, the Partnership and the Affiliate began foreclosure proceedings to take
possession of the property.  On October 4, 1990, Pacific First Bank, the second
leasehold mortgagee, filed an involuntary bankruptcy petition in the United
States Bankruptcy Court for the Northern District of California against the
ground lessee/debtor, to which filing the ground lessee/debtor subsequently
consented.  The ground lessee/debtor later consented to relief from stay of
foreclosure proceedings.  The Partnership and the Affiliate sold their interest
in the leasehold mortgage loan to Willows Concord on June 14, 1991.  In return,
the Partnership and the Affiliate took back a note in the amount of $14,863,206.

    Willows Concord foreclosed on the leasehold mortgage on June 18, 1991.  The
Partnership, the Affiliate and Willows Concord entered into a replacement
promissory note in the same principal amount of $14,863,206, effective June 18,
1991.  The new loan was secured by the leasehold interest, bore interest at the
rate of 9.323% per annum and provided for a reduction in principal if the note
was paid prior to maturity.  The Partnership, the Affiliate and Willows Concord
also entered into a new ground lease which provided for annual rent in the
amount of $550,000 plus an annual percentage rent equal to 70% of the ground
lessee's annual gross revenues in excess of a specified amount.  The Partnership
had a 75% share of such rent.  To the extent that operating cash flow from the
shopping center was not sufficient to pay the ground rent, such rent was
accruable until June 1996 at which time Willows Concord was obligated to pay all
unpaid accrued rent and to pay all future ground rent on

                                       3
<PAGE>

a current basis. The Partnership and the Affiliate had permitted the accrual of
additional ground rent after June 1996, and evaluated various alternatives.

    On January 1, 1995 the Partnership and the Affiliate committed to make a
$2.5 million construction loan to the ground lessee to fund the renovation of
the Center.  The Partnership committed to fund $1,875,000 of this amount.  The
loan bore interest at 11% per annum, provided for payments of principal and
interest based on a 15-year amortization schedule, and matured on December 31,
1997.  In addition, the ground lease was amended to provide the Partnership with
the sole right to cause a sale of the Center on or after January 1, 1996.

    On September 18, 1997, Willows Shopping Center was sold. The Partnership
received proceeds of $21,027,944 which, along with $9,912 form reserves,
$21,037,856 was distributed to the Limited Partners as a capital distribution in
the amount of $527.04 per Unit on October 30, 1997.

    D.    Research and Development Building in Los Angeles County, California
          -------------------------------------------------------------------
("Susana Corporate Center")
---------------------------

    In 1985 the Partnership acquired a 4.02 acre parcel of land in Los Angeles
County, California, for $1,750,000 and leased it back to the seller.  Situated
on the land was a one-story, 63,164 square foot research and development
facility leased to a single tenant.  In 1985 the Partnership also made a
$3,250,000 non-recourse mortgage loan to the ground lessee.  The loan was
secured by a first mortgage on the building and the leasehold interest in the
land.

    During 1993, the Partnership agreed to a restructuring of the ground lease
and the mortgage loan.  The mortgage loan was modified to increase the loan
amount by $192,000 to a total of $3,442,000.  The increase was made to fund
tenant improvements.

    On October 20, 1996, the Susana Corporate Center was sold.  The Partnership
received proceeds of $2,710,014 in satisfaction of its mortgage loan and ground
lease, of which $2,709,965 was distributed to the Limited Partners as a capital
distribution in the amount of $67.89 per Unit on January 30, 1997.

    E.    Research and Development Facility in Columbia, Maryland ("Case
          --------------------------------------------------------------
Communications Building")
-------------------------

    The Partnership continues to own a 19.2 acre parcel of land in Columbia,
Maryland, which it acquired for $2,570,379 and leased back to the seller.  A
160,000 square foot research and development building has been constructed on
the land.  The ground lease has a term of 60 years and provides for a fixed
annual rent of $262,392 plus additional rent equal to 65.864% of gross revenues
from the rental of the building in excess of a base amount.  The Partnership is
entitled to receive 60% of the net proceeds from the sale of the entire property
after it has recovered its investment in the land and the mortgage loan
described below:

    The Partnership has also fully funded a $8,814,621 non-recourse mortgage
loan to the ground lessee.  Interest only is payable monthly at the rate of 11%
per annum.  The loan matured on May 1, 1995 and is secured by a first mortgage
of the building and the leasehold interest in the land.  The Partnership has
also fully funded an additional $1,000,000 loan.  This loan bears interest at
the rate of 14% per annum, is secured by a second mortgage on the building and
leasehold interest in the land and matured simultaneously with the first
mortgage loan described above.

    In October 1996, the Partnership reached an agreement in principle with the
borrower on the mortgage loan, whereby the maturity date was extended to
December 1997.  In addition, the fixed interest and ground rental payments were
reduced, but the Partnership's rate of participation in revenue and sales
proceeds from the underlying property was increased, effective January 1, 1997.
The agreement was further amended whereby the Partnership was able to cause a
sale of the property without cause. In October 1997, the Partnership formally
executed the agreement to renew the mortgage loans at the previously agreed upon
terms.

                                       4
<PAGE>

Item 2.      Properties
             ----------

    The following table sets forth the annual realty taxes for the Partnership's
properties and information regarding tenants who occupy 10% or more of gross
leasable area (GLA) in the Partnership's properties:


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                          ESTIMATED                                                         ANNUAL
                                            1998                                                           CONTRACT
                                           ANNUAL        NUMBER OF                                           RENT
                                           REALTY     TENANTS WITH 10%     NAME(S) OF     SQUARE FEET OF     PER
               Property                     TAXES      OR MORE OF GLA      TENANT(S)       EACH TENANT     SQ. FT.
---------------------------------------------------------------------------------------------------------------------

<S>                                      <C>          <C>                 <C>              <C>             <C>
R&D Building in Columbia, MD              $200,000           1            US Government     160,000         $12.95
---------------------------------------------------------------------------------------------------------------------

<CAPTION>
----------------------------------------------
   LEASE      RENEWAL    LINE OF BUSINESS
 EXPIRATION   OPTIONS  OF PRINCIPAL TENANTS
----------------------------------------------
 <S>           <C>      <C>
 M-T-M (1)     None     Defense Research
----------------------------------------------
</TABLE>
(1)  A long-term lease is being negotiated.

                                       5
<PAGE>

    The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenues and net effective rent for the
Partnership's properties:

<TABLE>
<CAPTION>


--------------------------------------------------------------------------------------------------------------
                                                                                  RENTAL       NET EFFECTIVE
                                             GROSS LEASABLE      YEAR-END         REVENUE           RENT
                Property                          AREA           OCCUPANCY       RECOGNIZED      ($/SF/YR)*
--------------------------------------------------------------------------------------------------------------
<S>                                        <C>                 <C>             <C>             <C>
R&D Building in Columbia, MD
-----------------------------------------
                1993                            160,000            100%          $2,300,000           $14.38
                1994                            160,000            100%          $2,636,836           $16.48
                1995                            160,000            100%          $2,283,934           $14.27
                1996                            160,000            100%          $2,272,575           $14.20
                1997                            160,000            100%          $2,251,895           $14.07
--------------------------------------------------------------------------------------------------------------
</TABLE>

*  Net effective rent calculation is based on average occupancy during the
   respective year.

                                       6
<PAGE>

    Following is a schedule of lease expirations for each of the next ten years
for the Partnership's properties based on the annual contract rent in effect at
December 31, 1997:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
                                         TENANT AGING REPORT

          PROPERTY               # OF LEASE          TOTAL             TOTAL          PERCENTAGE OF
                                EXPIRATIONS       SQUARE FEET      ANNUAL RENTAL       GROSS ANNUAL
                                                                                         RENTAL*
-----------------------------------------------------------------------------------------------------
<S>                           <C>               <C>               <C>               <C>

R&D Building in Columbia, MD (1)
----------------------------

            1998                       1           160,000           $2,072,000           100%
            1999                       0                 0           $        0             0%
            2000                       0                 0           $        0             0%
            2001                       0                 0           $        0             0%
            2002                       0                 0           $        0             0%
            2003                       0                 0           $        0             0%
            2004                       0                 0           $        0             0%
            2005                       0                 0           $        0             0%
            2006                       0                 0           $        0             0%
-----------------------------------------------------------------------------------------------------
</TABLE>

(1)  A long-term lease is being negotiated.

*  Does not include expenses paid by tenants.

                                       7
<PAGE>

Following is information regarding the competitive market conditions for the
Partnership's remaining property.  This information has been gathered from
sources deemed reliable.  However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness.


Research & Development/Industrial Facilities in Columbia, MD
------------------------------------------------------------

The property is located within the Howard County R&D submarket, which has a base
of 8.9 million square feet and a 6.3% vacancy rate as of year-end 1997.  Due to
limited space in the marketplace, tenants continue to seek space that will
accommodate their growth needs and are moving from Washington, D.C. to the
Baltimore suburbs.  The Columbia flex submarket contains 6.8 million square feet
of space and a 6.5% vacancy rate.  Planned construction of 300,000 square feet
of speculative office space in this market is showing offering rates on new
product that are setting new highs.  As a result, 1997 rents for Howard County
averaged in the $10.00 - $10.50 range.

Item 3.  Legal Proceedings.
         ------------------

    The Partnership is not a party to, nor are any of its properties subject to,
any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.
         ----------------------------------------------------

    No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.

                                    PART II
                                    -------

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.
         ----------------------------------------------------------------------

    There is no active market for the Units. Trading in the Units is sporadic
and occurs solely through private transactions.

    As of December 31, 1997, there were 6,030 holders of Units.

    The Partnership's Amended and Restated Agreement of Limited Partnership
dated June 15, 1984, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. For the year ended December 31, 1997, cash distributions
paid for 1997 or distributed after year end with respect to 1997 to the Limited
Partners as a group totaled $25,875,397 including $22,709,978 ($568.93 per
limited partnership unit) representing a return of capital from the proceeds of
property sales and from reserves established with the proceeds of prior sales.
For the year ended December 31, 1996, cash distributions paid in 1996 or
distributed after year end with respect to 1996 to the Limited Partners as a
group totaled $7,429,752 including $4,943,720 ($123.85 per limited partnership
unit) representing a return of capital from the proceeds of property sales.

    Distributions of operating cash flow were less than net income in 1997 and
1996.  Distributions of operating cash flow were less than cash provided by
operating activities in both years.  Reference is made to the Partnership's
Statement of  Partners' Capital and Statement of Cash Flows in Item 8 herein.

                                       8
<PAGE>

Item 6.  Selected Financial Data.
         ------------------------

<TABLE>
<CAPTION>
                        For Year      For Year      For Year      For Year      For Year
                        Ended or      Ended or      Ended or      Ended or      Ended or
                         as of         as of         as of         as of         as of
                       12/31/97(5)   12/31/96(4)   12/31/95(3)   12/31/94(2)   12/31/93(1)
                      -----------   -----------   -----------   -----------   -----------
<S>                   <C>           <C>           <C>           <C>           <C>

Revenues              $ 8,635,870   $ 5,238,031   $ 5,313,944   $ 5,061,123   $ 4,902,277

Net Income            $ 6,687,557   $ 3,108,675   $ 1,710,797   $ 2,340,707   $ 1,376,686

Net Income
per Unit of
Limited
Partnership
Interest              $    165.86   $     77.10   $     42.43   $     58.05   $     34.14

Total Assets          $15,648,034   $40,338,664   $39,074,700   $39,868,957   $41,816,002

Total Cash
Distributions
per Limited
Partnership Unit,
including amounts
distributed after
year end with
respect to such
year                      $648.23       $186.13        $62.28       $109.84       $61.12
</TABLE>

(1) The Partnership recorded a provision of  $1,670,000 ($41.42 per Unit) for
    impaired mortgage loans during 1993.

(2) The Partnership recorded a provision of $800,000 ($19.84 per Unit) for
    impaired mortgage loans during 1994.

(3) The Partnership recorded a provision of $1,428,000 ($35.42 per Unit) for
    impaired mortgage loans during 1995.

(4) The Partnership sold two investments in 1996 which resulted in capital
    distributions of $4,943,720 ($123.85 per Unit).  The Partnership also
    recorded a credit of $17,291 ($0.43 per Unit) for impaired mortgage loans
    during 1996.

(5) The Partnership sold two investments in 1997 which resulted in capital
    distributions of $22,709,978 ($568.93 per Unit).

                                       9
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Liquidity and Capital Resources

    The Partnership completed its offering of units of limited partnership
interest in November, 1984.  A total of 39,917 units were sold.  The Partnership
received proceeds of $36,296,995, net of selling commissions and other offering
costs, which have been used for investment in real estate and the payment of
related acquisition costs, or retained as working capital reserves.  The
Partnership made six real estate investments; five investments have been sold,
one in 1993, two in 1996 and two in 1997.  Capital of $33,028,124 ($827.42 per
limited partnership unit) has been returned to the limited partners through
December 31, 1997 as a result of sales and similar transactions.


    On September 18, 1997, the Willows Shopping Center, in Concord, California,
which was owned by the Partnership (75%) and its Affiliate (25%), was sold to an
institutional buyer (the "Buyer") unaffiliated with the Partnership.  The
selling price was determined by arm's length negotiations between the
Partnership and its Affiliate and the Buyer.  The total sales price was
$28,575,000.  The Partnership received its share of the net proceeds totaling
$21,027,944, after closing costs, and recognized a gain of $3,322,455 ($82.40
per limited partnership unit).  A disposition fee of $642,937 was accrued but
not paid to AEW.  On October 30, 1997, the Partnership made a capital
distribution of $21,037,856 ($527.04 per limited partnership unit) from the
proceeds of the sale and prior sales proceeds held in reserves.

    On October 27, 1997, the Oakland property located in Columbia, Maryland, was
sold to an institutional buyer (the "Oakland Buyer") which is unaffiliated with
the Partnership.  The selling price was determined by arm's length negotiations
between the Partnership and the Oakland Buyer.  The property was sold for
$1,900,000.  The Partnership received net proceeds of $1,207,283 in full
satisfaction of its ground lease and mortgage loan investments and related
accrued interest.  The Partnership received additional proceeds of  $465,756
after closing costs as its participation share of the remaining proceeds after
it recovered its investment in the land and mortgage loan.  The transaction
resulted in a gain of $400,826 ($10.04 per limited partnership unit).

    At December 31, 1997, the Partnership had $3,956,207 in cash, cash
equivalents and short-term investments, of which $365,704 was used for operating
cash distributions on January 29, 1998. The remainder of the cash and short-term
investment balances, after these distributions, is being retained as working
capital reserves.  The source of future liquidity and cash distributions to
partners is expected to be cash generated by the Partnership's real estate
investments and proceeds from the sale of such investments.  The adjusted
capital contribution was reduced from $889.89 to $172.58 per limited partnership
unit during 1997, with distributions of reserves and sales proceeds. Based on
the weighted average adjusted capital contribution, distributions from
operations were made at the annualized rate of 7% for the first and second
quarters of 1997, and 9.5% for the third and fourth quarters of 1997.
Distributions of cash from operations for 1996 were made at the annualized rate
of 7% for the first, second and third quarters.

    The carrying value of real estate investments in the financial statements is
at depreciated cost or, if the investment's carrying value is determined not to
be recoverable through expected undiscounted future cash flows, the carrying
value is reduced to estimated fair market value.  The fair market value of such
investments is further reduced by the estimated cost of sale for properties held
for sale.  Carrying value may be greater or less than current appraised value.
At December 31, 1997, the appraised value of the Partnership's investment was
approximately $1.5

                                       10
<PAGE>

million greater than its carrying value. The current appraised value of real
estate investments has been estimated by the General Partner and is generally
based on a correlation of traditional appraisal approaches performed by AEW
Capital Management, L.P. ("AEW") and independent appraisers. Because of the
subjectivity inherent in the valuation process, the estimated current appraised
value may differ significantly from that which could be realized if the real
estate were actually offered for sale in the marketplace.

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  Any of the Partnership's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business operations.  The General Partner and its affiliates are assessing the
modifications or replacements of its software that may be necessary.  The
General Partner and its affiliates do not believe that the cost of either
modifying existing software or converting to new software will be significant or
that the Year 2000 Issue will pose significant problems.


Results of Operations


Operating Factors

    The two Elkridge buildings and the Susana Corporate Center were sold in
1996.

    As previously discussed, the Willows Shopping Center was sold in September
1997, and the Partnership recognized a gain of $3,322,455.  At the time of sale,
the Willows Shopping Center was 94% leased; at December 31, 1996 and December
31, 1995 it was 94% and 91% leased, respectively.

    Occupancy at the Oakland property was 88% at October 27, 1997, down from 91%
at December 31, 1996 and December 31, 1995, due to a month-to-month tenant's
vacating during the quarter.  The property was sold in October 1997, and the
Partnership recognized a gain of $400,826.

    The Case Communications property continues to be fully occupied by a
government agency, whose lease expired in November 1996.  The tenant has
indicated its intention to renew, although a new lease agreement has not yet
been executed.  In the meantime, the tenant has been renting the space on a
month-to-month basis under the same terms of the pre-existing lease.

    The Partnership's mortgage loans on Oakland and Case Communications matured
in 1994 and 1995, respectively.  In October 1996, the Partnership reached an
agreement in principle (the "Agreement") with the borrowers, whereby the
maturity dates were to be extended to December 1997. In addition, the fixed
interest and ground rental payments were reduced, but the Partnership's rate of
participation in revenue and sales proceeds from the underlying properties was
increased to 80%. In addition, the Agreement was further amended whereby the
Partnership will be able to cause a sale of the properties without cause. In
October 1997, the Partnership formally executed the Agreement to renew the
mortgage loans at the previously agreed upon terms. As a result of this
restructuring, the Partnership obtained virtually the same risks and potential
rewards as ownership of the asset would entail. Accordingly, the Partnership
reported this investment as an owned property beginning in October 1997.

                                       11
<PAGE>

Investment Results

    During the fourth quarter of 1995, the Partnership determined that the
mortgage loans secured by the Case Communications Building were impaired,
primarily due to the change in the expected holding period for the property and
a decrease in market rental rates.  This impairment resulted in an increase to
the valuation allowance of $1,100,000, which was charged to operations in 1995.
During 1996, the estimated fair market value of the loan's collateral increased,
resulting in a recovery to the valuation allowance of $300,000.  Ground rent and
interest payments from Case Communications continue to be made in accordance
with contractual terms.

1997 Compared to 1996

    Interest on cash equivalents and short-term investments in 1997 increased by
approximately $84,000 compared to 1996, primarily due to higher average
investment balances as a result of the receipt of the Willows Shopping Center
sales proceeds.

    Total real estate activity was $6,656,336 and $2,559,474 (net of exclusions
below) for the twelve months ended December 31, 1997 and 1996, respectively.
This increase of $4,096,862, is partially due to gain on sale of properties in
1997 in the amount of $3,723,281,as well as an increase in percentage rent for
1997 and an increase in income from Willows Shopping Center prior to the sale.
Additionally, the Partnership recorded net real estate operations totaling
approximately $457,000 during the fourth quarter of 1997 due to the
restructuring of the Case Communications investment.

    The increase in operating cash flow of approximately $52,000 or 2%, between
1996 and 1997 is due to a decrease in operating liabilities.

1996 Compared to 1995

    Interest on cash equivalents and short-term investments in 1996 increased by
$9,825 compared to 1995, primarily due to higher average investment balances
during the last eight months of 1996 as a result of the receipt of the Elkridge
and Susana sale proceeds, offset by lower average yields and lower average
balances during the first four months of the year.

    Exclusive of the credit from (provision for) impaired mortgage loans and the
operating results from Susana Corporate Center ($384,239 in 1996 and $480,793 in
1995) and Elkridge ($238,235 in 1996 and $123,000 in 1995), real estate results
were $2,559,474 in 1996 compared to $2,655,357 in 1995.  Operating income from
the Case Communications and the Oakland investments both declined as a result of
lower percentage rent payments.  These decreases were partially offset by an
increase in net operating income from the Willows Shopping Center of
approximately $43,000 as a result of increased occupancy.

    Operating cash flow decreased $166,000, or 5%, between 1996 and 1995.  This
decrease is primarily due to the above mentioned changes in operating results
and increased leasing costs at the Willows, partially offset by changes in net
working capital.

Portfolio Expenses

    The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the General Partner.

                                       12
<PAGE>

General and administrative expenses primarily consist of real estate appraisal,
printing, legal, accounting and investor servicing fees.

1997 Compared to 1996

    General and administrative expenses decreased approximately $7,500 or 5%,
primarily due to a decrease in professional fees for 1997 as a result of fewer
investments.  Management fee expense decreased by approximately 12% in 1997
compared to 1996 due to a decrease in distributable cash flow.

1996 Compared to 1995

    General and administrative expenses decreased approximately $20,000 or 12%,
primarily due to a decrease in professional fees for 1996 as a result of fewer
investments.  Management fee expense was unchanged between 1996 and 1995,
consistent with the level of distributable cash flow for each period.

Inflation

    By their nature, real estate investments tend not to be adversely affected
by inflation.  Inflation may result in appreciation in the value of the
Partnership's real estate investments over time if rental rates and replacement
costs increase.  Declines in real property values, during the period of
Partnership operations, due to market and economic conditions, have overshadowed
the positive effect inflation may have on the value of the Partnership's
investments.

                                       13
<PAGE>

Item 8.  Financial Statements and Supplementary Data.
         --------------------------------------------

    See the Financial Statements of the Partnership included as a part of this
Annual Report on Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         ---------------------------------------------------------------
Financial Disclosure.
--------------------

    The Partnership has had no disagreements with its accountants on any matters
of accounting principles or practices or financial statement disclosure.

                                  PART III
                                  --------

Item 10.  Directors and Executive Officers of the Registrant.
          ---------------------------------------------------

          (a) and (b) Identification of Directors and Executive Officers.
                      ---------------------------------------------------

          The following table sets forth the names of the directors and
executive officers of the General Partner and the age and position held by each
of them as of December 31, 1997.

<TABLE>
<CAPTION>
Name                                Position(s) with the General Partner                     Age
---------------------------    ----------------------------------------------------------  ---------
<S>                            <C>                                                           <C>

Wesley M. Gardiner, Jr.        President, Chief Executive Officer and Director                39
Pamela J. Herbst               Vice President and Director                                    42
J. Grant Monahon               Vice President and Director                                    52
James J. Finnegan              Vice President                                                 37
Karin J. Lagerlund             Treasurer and Principal Financial and Accounting Officer       33
</TABLE>

          (c)  Identification of Certain Significant Employees.
               -----------------------------------------------

               None.

          (d)  Family Relationships.
               --------------------

               None.

          (e)  Business Experience.
               --------------------

     The General Partner was incorporated in Massachusetts on August 25, 1983.
The background and experience of the executive officers and directors of the
General Partner are as follows:

    Wesley M. Gardiner, Jr. joined AEW Real Estate Advisors, Inc. ("AEW"),
formerly known as Copley Real Estate Advisors, Inc., in 1990 and has been a Vice
President at AEW since January, 1994. AEW is a subsidiary of AEW Capital
Management, L.P. ("AEW Capital Management"). From 1982 to 1990, he was employed
by Metric Realty, a nationally-known real estate investment advisor and
syndication firm, as a portfolio manager responsible for several public and
private limited partnerships. His career at AEW has included asset management
responsibility for the company's Georgia and Texas holdings. Presently, Mr.
Gardiner has overall responsibility for all the partnerships advised by AEW
whose securities are registered under the Securities and Exchange Act of 1934.
He received a B.A. in Economics from the University of California at San Diego.

    Pamela J. Herbst directs AEW Capital Management's Portfolio Advisory
Services, with oversight responsibility for the asset and portfolio management
areas. Ms. Herbst is a member of AEW Capital Management's Investment Policy
Group and Management Committee. She came to AEW Capital Management in December
1996 as a result of the firm's merger with Copley Real Estate Advisors, Inc.
where she held various senior level positions in asset and portfolio management,
acquisitions and corporate operations since 1982. Ms. Herbst is a graduate of
the University of Massachusetts (B.A.) and Boston University (M.B.A.).

    J. Grant Monahon is AEW Capital Management's General Counsel and a member of
the firm's Management Committee and Investment Policy Group. He has over 25
years of experience in real estate law and investments. Prior to joining AEW
Capital Management in 1987, Mr. Monahon was a partner with a major Boston law
firm. As the head of that firm's real estate finance department, he represented
a wide variety of institutional clients, both domestic and international, in
complex equity and debt transactions. He is the former Chairman of the General
Counsel section of the National Association of Real Estate Investment Managers.
Mr. Monahon is a graduate of Dartmouth College (B.A.) and Georgetown University
Law Center (J.D.).

                                       14
<PAGE>

    James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr.
Finnegan has over ten years of experience in real estate law, including seven
years of experience in private practice with major New York City and Boston law
firms. Mr. Finnegan also serves as the AEW's securities and regulatory
compliance officer. Mr. Finnegan is a graduate of the University of Vermont
(B.A.) and Fordham University School of law (J.D.).

    Karin J. Lagerlund directs the Advisory Services Portfolio Accounting Group
at AEW Capital Management, overseeing portfolio accounting, performance
measurement and client financial reporting for AEW's private equity investment
portfolios. Ms. Lagerlund is a Certified Public Accountant and has over ten
years in real estate consulting and accounting. Prior to joining AEW Capital
Management in 1994, she was an Audit Manager at EY/Kenneth Leventhal LLP. Ms.
Lagerlund is a graduate of Washington State University (B.A.).

(f) Involvement in Certain Legal Proceedings.

    None.

Item 11.  Executive Compensation.
          ----------------------

    Under the Partnership Agreement, the General Partner and its affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership.  See Notes 1, 2 and 6 of Notes to Financial Statements.

    The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partner and its
affiliates for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                                                     Amount of
                                                                   Compensation
                                                                        and
Receiving Entity                         Type of Compensation      Reimbursement
------------------------------------  ---------------------------  -------------
<S>                                   <C>                          <C>

General Partner                       Share of Distributable Cash       $ 22,083

AEW Real Estate Advisors, Inc.        Management Fees and                218,407
(formerly known as Copley Real.       Reimbursement of Expenses
Estate Advisors, Inc.)

New England Securities Corporation    Servicing Fees and
                                      Reimbursement of Expenses            9,265
                                                                   -------------

                                      TOTAL                             $249,755
                                                                   =============
</TABLE>

    For the year ended December 31, 1997, the Partnership allocated $38,394 of
taxable loss to the General Partner.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
         --------------------------------------------------------------

    (a) Security Ownership of Certain Beneficial Owners

    No person or group is known by the Partnership to be the beneficial owner of
more than 5% of the outstanding Units at December 31, 1997. Under the
Partnership Agreement, the voting rights of the

                                       15
<PAGE>

Limited Partners are limited and, in some circumstances, are subject to the
prior receipt of certain opinions of counsel or judicial decisions.

    Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the General
Partner.

    (b) Security Ownership of Management.

    An affiliate of the General Partner of the Partnership owned 831 Units at
December 31, 1997.

    (c) Changes in Control.

    There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.

Item 13.  Certain Relationships and Related Transactions.
          ----------------------------------------------

    The Partnership has no relationships or transactions to report other than as
reported in Item 11, above.


                                    PART IV
                                    -------

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
          ----------------------------------------------------------------

    (a)   The following documents are filed as part of this report:

          (1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedules and Financial
Statements Index No. 2 are filed as part of this Annual Report.

          (2) Financial Statement Schedules--The Financial Statement Schedules
listed on the accompanying Index to Financial Statements and Schedules are filed
as part of this Annual Report.

          (3) Exhibits--The Exhibits listed in the accompanying Exhibit Index
are filed as a part of this Annual Report and incorporated in this Annual Report
as set forth in said Index.

    (b)   Reports on Form 8-K.  During the last quarter of the year ended
December 31, 1997, the Partnership filed no Current Reports on Form 8-K.

                                       16
<PAGE>

                               New England Life
                            Pension Properties II;

                       A Real Estate Limited Partnership



                             Financial Statements


                                 * * * * * * *



                               December 31, 1997
<PAGE>

                    NEW ENGLAND LIFE PENSION PROPERTIES II;
                    --------------------------------------
                       A REAL ESTATE LIMITED PARTNERSHIP
                       ---------------------------------

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
                  -------------------------------------------






Report of Independent Accountants

Financial Statements:

     Balance Sheets - December 31, 1997 and 1996

     Statements of Operations - Years ended December 31, 1997, 1996
         and 1995

     Statements of Partners' Capital - Years ended
         December 31, 1997, 1996 and 1995

     Statements of Cash Flows - Years ended December 31, 1997, 1996
         and 1995

     Notes to Financial Statements

Financial Statement Schedules:

     Schedule III - Real Estate and Accumulated
         Depreciation as of December 31, 1997, 1996 and 1995

     Schedule IV - Mortgage Loans on Real Estate
         as of December 31, 1997

                                       2
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------


To the Partners

NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP

In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of New England
Life Pension Properties II; A Real Estate Limited Partnership (the
"Partnership") at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.  These
financial statements are the responsibility of Copley Properties Company II,
Inc., the General Partner of the Partnership; our responsibility is to express
an opinion on these financial statements based on our audits.  We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the General
Partner, and evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for the opinion expressed
above.


/s/ Price Waterhouse LLP
------------------------
Boston, Massachusetts
March 23, 1998

                                       3
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES II;
---------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
<TABLE>
<CAPTION>

BALANCE SHEETS

                                                     December 31,
                                              ------------------------

                                                  1997         1996
                                              -----------  -----------
<S>                                           <C>          <C>

ASSETS

Real estate investments:
   Ground leases and mortgage loans, net      $        --  $12,896,144
   Property, net                               11,660,486   16,795,323
   Deferred leasing costs and
     other assets, net                                 --      809,629
                                              -----------  -----------
                                               11,660,486   30,501,096

Cash and cash equivalents                       2,111,776    7,877,668
Short-term investments                          1,844,431    1,912,918
Interest and rent receivable                       31,341       46,982
                                              -----------  -----------

                                              $15,648,034  $40,338,664
                                              ===========  ===========

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                              $    65,476  $ 1,014,398
Accrued management fee                             36,169       62,089
Deferred disposition fees                       1,172,249      472,312
                                              -----------  -----------
Total liabilities                               1,273,894    1,548,799
                                              -----------  -----------

Partners' capital:
    Limited partners ($172.58 per
      unit; 110,000 units authorized,
      39,917 units issued and outstanding)     14,261,105   38,719,002
    General partner                               113,035       70,863
                                              -----------  -----------
Total partners' capital                        14,374,140   38,789,865
                                              -----------  -----------
                                              $15,648,034  $40,338,664
                                              ===========  ===========
</TABLE>

               (See accompanying notes to financial statements)

                                       4
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES II;
---------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
<TABLE>
<CAPTION>

STATEMENTS OF OPERATIONS

                                                Year ended December 31,
                                        --------------------------------------

                                           1997          1996          1995
                                        ----------   -----------   -----------
<S>                                     <C>          <C>           <C>

INVESTMENT ACTIVITY

Property rentals                        $2,960,401   $ 2,364,793   $ 2,340,380
Property operating expenses               (950,646)   (1,029,200)   (1,063,651)
Depreciation and amortization             (641,035)     (706,119)     (697,495)
                                        ----------   -----------   -----------
                                         1,368,720       629,474       579,234

Ground rentals and interest
 on mortgage loans                       1,564,335     2,552,474     2,679,916
Credit from (provision for) impaired
 mortgage loans                                  -        17,291    (1,428,000)
                                        ----------   -----------   -----------

 Total real estate operations            2,933,055     3,199,239     1,831,150

Gain on disposition of investments       3,723,281             -             -
                                        ----------   -----------   -----------
 Total real estate activity              6,656,336             -             -

Interest on cash equivalents
 and short-term investments                387,853       303,473       293,648
                                        ----------   -----------   -----------

 Total investment activity               7,044,189     3,502,712     2,124,798
                                        ----------   -----------   -----------

PORTFOLIO EXPENSES

Management fee                             218,407       248,355       248,355
General and administrative                 138,225       145,682       165,646
                                        ----------   -----------   -----------
                                           356,632       394,037       414,001
                                        ----------   -----------   -----------

NET INCOME                              $6,687,557   $ 3,108,675   $ 1,710,797
                                        ==========   ===========   ===========

Net income per limited
 partnership unit                          $165.86        $77.10        $42.43
                                        ==========   ===========   ===========

Cash distributions per limited
 partnership unit                          $778.58        $62.28        $61.17
                                        ==========   ===========   ===========

Number of limited partnership units
 outstanding during the year                39,917        39,917        39,917
                                        ==========   ===========   ===========
</TABLE>


               (See accompanying notes to financial statements)

                                       5
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES II;
---------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                              Year ended December 31,
                                                   ----------------------------------------
                                                        1997          1996          1995
                                                   ------------   -----------   -----------
<S>                                                <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                        $  6,687,557   $ 3,108,675   $ 1,710,797
 Adjustments to reconcile net income to net
   cash provided by operating activities:
   Depreciation and amortization                        641,035       706,119       697,495
   (Credit from) provision for impaired
    mortgage loans                                            -       (17,291)    1,428,000
   Gain on disposition of investment                 (3,723,281)            -             -
   Increase in deferred leasing costs and
    other assets                                        (33,086)     (348,491)      (67,865)
   Decrease (increase) in operating receivables         (27,623)      191,725      (178,617)
   Increase (decrease) in operating liabilities        (211,008)     (255,250)      (38,668)
                                                   ------------   -----------   -----------
    Net cash provided by operating activities         3,333,594     3,385,487     3,551,142
                                                   ------------   -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Net proceeds from sale of investments               20,936,707     2,362,397             -
 Repayment of mortgage loan investments               1,062,500     2,423,791             -
 Capital expenditures on owned property                (763,835)   (1,285,649)   (1,247,337)
 Decrease (increase) in short-term
   investments, net                                      68,487       613,008    (1,206,689)
 Increase in deferred disposition fees                  699,937       157,848             -
                                                   ------------   -----------   -----------
   Net cash provided by (used in)
   investing activities                              22,003,796     4,271,395    (2,454,026)
                                                   ------------   -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITY:
 Distributions to partners                          (31,103,282)   (2,511,144)   (2,466,387)
                                                   ------------   -----------   -----------
   Net cash used in financing activity              (31,103,282)   (2,511,144)   (2,466,387)
                                                   ------------   -----------   -----------

Net increase (decrease) in cash and cash
 equivalents                                         (5,765,892)    5,145,738    (1,369,271)

Cash and cash equivalents:
 Beginning of year                                    7,877,668     2,731,930     4,101,201
                                                   ------------   -----------   -----------

 End of year                                       $  2,111,776   $ 7,877,668   $ 2,731,930
                                                   ------------   ===========   ===========
</TABLE>

NON-CASH TRANSACTIONS:

     Effective October 14, 1997, the Partnership`s ground lease/mortgage loan
investment in the Case Communications Building was converted to a wholly-owned
property.  The carrying value of this investment at conversion was $11,676,847.

               (See accompanying notes to financial statements)

                                       6
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES II;
---------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------

STATEMENTS OF PARTNERS' CAPITAL



<TABLE>
<CAPTION>
                                                      Year ended December 31,
                         ------------------------------------------------------------------------
                                  1997                     1996                     1995
                         ----------------------   ----------------------   ----------------------

                         General        Limited    General       Limited    General       Limited
                         Partner       Partners    Partner      Partners    Partner      Partners
                        --------   ------------   --------   -----------   --------   -----------
<S>                     <C>        <C>            <C>        <C>           <C>        <C>

Balance at beginning
   of year              $ 70,863   $ 38,719,002   $ 64,888   $38,127,446   $ 72,444   $38,875,480

Cash distributions       (24,704)   (31,078,578)   (25,112)   (2,486,032)   (24,664)   (2,441,723)

Net income                66,876      6,620,681     31,087     3,077,588     17,108     1,693,689
                        --------   ------------   --------   -----------   --------   -----------

Balance at end
   of year              $113,035   $ 14,261,105   $ 70,863   $38,719,002   $ 64,888   $38,127,446
                        --------   ============   ========   ===========   ========   ===========
</TABLE>

                (See accompanying notes to financial statements)

                                       7
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES II;
---------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

     General
     -------

     New England Life Pension Properties II; A Real Estate Limited Partnership
(the "Partnership") is a Massachusetts limited partnership organized for the
purpose of investing primarily in newly constructed and existing income
producing real properties. It primarily serves as an investment for qualified
pension and profit sharing plans and other entities intended to be exempt from
federal income tax. The Partnership commenced operations in June, 1984 and
acquired six real estate investments through 1986, five of which have been sold
as of December 31, 1997. It intends to dispose of its investments within twelve
years of their acquisition, and then liquidate; however, the General Partner
could extend the investment period if it is in the best interest of the limited
partners.

     The General Partner of the Partnership is Copley Properties Company II,
Inc., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"),
formerly known as Copley Real Estate Advisors, Inc. ("Copley"). Subject to the
general partner's overall authority, the business of the Partnership is managed
by AEW pursuant to an advisory contract.

     On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC"), a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
operations"). Simultaneously, a new entity, AEW Capital Management, L.P., was
formed into which NEIC contributed its interest in Copley and its affiliates. As
a result, the AEW operations were combined with Copley to form the business
operations of AEW Capital Management, L.P. At year end 1997, NEIC completed a
restructuring plan under which it contributed all of its operations to a newly
formed private partnership, NEIC Operating Partnership, L.P., in exchange for a
general partnership interest in the newly formed entity. As such, at December
31, 1997, AEW Capital Management, L.P. is wholly owned by NEIC Operating
Partnership, L.P. AEW is a subsidiary of AEW Capital Management, L.P.

     Prior to August 30, 1996, New England Mutual Life Insurance Company ("The
New England") was NEIC's principal unit holder and owner of all of the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner.

     At December 31, 1997 and 1996, an affiliate of the general partner owned
831 units of limited partnership interest which were repurchased from certain
qualified plans within specified annual limitations provided for in the
Partnership Agreement.

     Management
     ----------

     AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash from operations, as defined, before deducting such fees.
Acquisition fees were paid in an amount equal to 2% of the gross proceeds from
the offering. Disposition fees are limited to the lesser of 3% of the selling
price of the property or 50% of the standard real estate commission customarily
charged by an independent real estate broker. Payment of disposition fees are
subject to the prior receipt by the limited partners of their capital
contributions plus a stipulated return thereon.

                                       8
<PAGE>

     New England Securities Corporation, an indirect subsidiary of Met Life, is
engaged by the Partnership to act as its unit holder servicing agent.  Fees and
out-of-pocket expenses for such services totaled $9,265, $8,834 and $7,973 in
1997, 1996 and 1995, respectively.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

     Accounting Estimates
     --------------------

     The preparation of financial statements in conformity with generally
accepted accounting principles requires the general partner to make estimates
affecting the reported amounts of assets and liabilities, and of revenues and
expenses. In the Partnership's business, certain estimates require an assessment
of factors not within management's control, such as the ability of tenants to
perform under long-term leases and the ability of the properties to sustain
their occupancies in changing markets. Actual results, therefore, could differ
from those estimates.

     Ground Leases and Mortgage Loans
     --------------------------------

     While the related land and loan investments are legally separable, the
terms thereof have been negotiated jointly and the investment performance is
evaluated on a combined basis. They are, therefore, presented together in the
accompanying balance sheet and statement of operations.

     Investments in land subject to ground leases are stated at cost, plus
accrued revenue. Investments in mortgage loans to the related ground lessees are
originally stated at cost, plus accrued interest. If the mortgage loan is
impaired (see "Impaired Mortgage Loans" below), the carrying amount is adjusted
to the estimated market value of the underlying collateral less anticipated
costs of sale.

     Impaired Mortgage Loans
     -----------------------

     The Partnership considers a loan to be impaired when it is probable that it
will be unable to collect all amounts due under the contractual terms of the
loan agreement.  Factors that the Partnership considers in determining whether a
loan is impaired include its past due status, fair value of the underlying
collateral and economic prospects of the borrower.  When a loan is impaired, its
carrying value is periodically adjusted, through a valuation allowance, to its
estimated market value which is based on the appraised value of the underlying
collateral less anticipated costs of sale.  Changes in the valuation allowance
are reported in the Statement of Operations.

     Property
     --------

     Property, including ground lease mortgage loans which are in substance real
estate investments, includes land, building, and improvements which are stated
at cost less accumulated depreciation plus other operating assets and
liabilities.  The Partnership's initial carrying value of an investment
previously reported as a ground lease/mortgage loan equals the carrying amount
of the predessor investment at the conversion date.

     The Partnership and an affiliate share common ownership of the Willows
Shopping Center investment.  The form of the investment is a combination ground
lease and mortgage loan, as described above; however, in this case (Willows
Shopping Center), substantial economic risks of property ownership rest with the
Partnership and its affiliate.  Accordingly, the investment was accounted for as
owned property, although the Partnership and its affiliate have a priority claim
to all unrecognized contractual revenue.  The Partnership's financial statements
include its proportionate ownership share (75%) of the individual assets,
liabilities, revenue and expenses related to the property.  Land and buildings
and improvements (net of accumulated depreciation) are classified as property in
the balance sheet.

     Capitalized Costs, Depreciation and Amortization
     ------------------------------------------------

     Maintenance and repair costs are expensed as incurred.  Significant
improvements and renewals are capitalized.  Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements.  Leasing costs are also capitalized and amortized over the related
lease terms.

                                       9
<PAGE>

     Acquisition fees have been capitalized as part of the cost of real estate
investments.  Amounts not related to land are being amortized using the
straight-line method over the terms of the mortgage loans or the estimated
useful lives of the property.

     Leases provide for rental increases over the respective lease terms.
Rental revenue is being recognized on a straight-line basis over the lease
terms.

     Realizability of Real Estate Investments
     ----------------------------------------

     The Partnership considers a real estate investment to be impaired when it
determines the carrying value of the investment is not recoverable through
estimated undiscounted cash flows generated from the operations and disposal of
the property.  The impairment loss is based on the excess of the investment's
carrying value over its fair market value.  For investments being held for sale,
the impairment loss also includes estimated costs of sale.  Property held for
disposition is not depreciated during the holding period.

     The carrying value of an investment may be more or less than its current
appraised value.  At December 31, 1997 the appraised value of the Partnership's
remaining investment exceeded its carrying value by approximately $1,500,000. At
December 31, 1996 the appraised values of all of the Partnership's investments
exceed their respective carrying values by a total of approximately $980,000.

     The current appraised value of the real estate investment has been
estimated by the General Partner and is generally based on a correlation of
traditional appraisal approaches performed by the Partnership's advisor and
independent appraisers.  Because of the subjectivity inherent in the valuation
process, the estimated current appraised value may differ significantly from
that which could be realized if the real estate were actually offered for sale
in the marketplace.

     Cash Equivalents and Short-Term Investments
     -------------------------------------------

     Cash equivalents are stated at cost, plus accrued interest.  The
Partnership considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be cash equivalents; otherwise, they are
classified as short-term investments.

     The Partnership has the positive intent and ability to hold all short-term
investments to maturity; therefore, short-term investments are carried at cost,
plus accrued interest, which approximates market value. At December 31, 1997 and
1996, all investments were in commercial paper with less than three and five
months, respectively, remaining to maturity.

     Deferred Disposition Fees
     -------------------------

     Disposition fees due to AEW related to sales or restructuring of
investments are included in the determination of gains or losses resulting from
such transactions. According to the terms of the advisory contract, payment of
such fees has been deferred until the limited partners first receive their
capital contributions, plus stipulated returns thereon.

     Income Taxes
     ------------

     A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership.  A
proportionate share of the Partnership's income is reportable on each partner's
tax return.

     Per Unit Computations
     ---------------------

     Per unit computations are based on the number of units of limited
partnership interest outstanding during the year.  The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.

     Effective January 1, 1998, the Partnership adopted FAS 128 "Earnings per
Share," which simplifies the standards of reporting earnings per share (EPS)
previously found in APB Opinion No. 15.  It provides guidance on the computation
and disclosure of basic and diluted EPS and requires

                                       10
<PAGE>

restatement of prior periods for comparative purposes. The adoption of FAS 128
did not have a material impact on the Partnership's financial statements.

NOTE 3 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS
--------------------------------------------------------

Industrial/Research and Development Building in Columbia, Maryland ("Columbia")
--------------------------------------------------------------------------------

     In 1984, the Partnership purchased the ground leasehold interest in a 2.5
acre parcel of land located in Columbia, Maryland, which is subleased to
Columbia Warehouse Limited Partnership ("CWLP") for $137,500. The ground lease,
as amended on June 1, 1989, had an unexpired term of approximately 75 years.
Annual rental revenue under the ground lease was approximately $3,420 and was
adjusted at five-year intervals. The Partnership received an annual rent of
$16,500 from the sublessee, plus an annual percentage rent equal to 75% of gross
revenues from the rental of the building in excess of a base amount. The
Partnership was entitled to receive 75% of the net proceeds from the sale of the
entire property after it recovered its investment in the land and the mortgage
loan described below.

     In 1984 the Partnership also made a $1,062,500 non-recourse mortgage loan
to CWLP that matured on June 29, 1994. The loan was secured by a first mortgage
of the building and of the leasehold interest in the land. Interest only was
payable monthly at the rate of 12% per annum.

     In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loan, whereby the maturity date would be extended
to December 1997.  In addition, the fixed interest and ground rental payments
would be reduced, but the Partnership's rate of participation in revenue from
the underlying property would be increased to 80%.  The agreement was further
amended whereby the Partnership would be able to cause a sale of the property.
In October 1997, the Partnership formally executed the agreement to renew the
mortgage loan at the previously agreed upon terms.

     On October 27, 1997, the Partnership sold the Columbia property for
$1,900,000.  The selling price was determined by arm's length negotiations
between the Partnership and the buyer.  The Partnership received its share of
the net proceeds totaling $1,671,200, after closing costs and repayment of the
ground lease investment and mortgage loan, and recognized a gain of $400,826
($10.04 per limited partnership unit).  A disposition fee of $57,000 was accrued
but not paid to AEW.  On November 25, 1997, the Partnership made a capital
distribution of $1,672,123 ($41.89 per limited partnership unit) from the
proceeds of the sale and reserves.

Research and Development Facility in Columbia, Maryland ("Case Communications
-----------------------------------------------------------------------------
Building")
----------

     The Partnership continues to own a 19.2 acre parcel of land in Columbia,
Maryland, which it acquired for $2,570,379 and leased back to the seller.  A
160,000 square foot research and development building has been constructed on
the land.  The ground lease has a term of 60 years and provides for a fixed
annual rent of $262,392 plus additional rent equal to 65.864% of gross revenues
from the rental of the building in excess of a base amount.  The Partnership is
entitled to receive 60% of the net proceeds from the sale of the entire property
after it has recovered its investment in the land and the mortgage loan.

     The Partnership has also fully funded an $8,814,621 non-recourse mortgage
loan to the ground lessee.  Interest only was payable monthly at the rate of 11%
per annum.  The loan matured on May 1, 1995 and is secured by a first mortgage
of the building and the leasehold interest in the land.  The Partnership has
also fully funded an additional $1,000,000 loan.  This loan bore interest at the
rate of 14% per annum, is secured by a second mortgage on the building and
leasehold interest in the land and matured simultaneously with the first
mortgage loan described above.

                                       11
<PAGE>

     In October 1996, the Partnership reached an agreement in principle ("Case
Agreement") with the borrower on the mortgage loan, whereby the maturity date
was extended to December 1997.  In addition, the fixed interest and ground
rental payments were reduced to 9.5%, but the Partnership's rate of
participation in revenue from the underlying property was increased, effective
January 1, 1997.  Further, the Partnership will be able to cause a sale of the
property.  In October 1997, the Partnership formally executed the agreement to
renew the mortgage loans at the previously agreed upon terms.

     As a result of the execution of the Case Agreement which, amongst other
things, increased the Partnership's participation in revenues and residual
proceeds from sale of the collateral to 80% and granted the Partnership the
ability to force a sale, the Partnership converted this investment to an owned
"Property" effective in the fourth quarter of 1997.  Net real estate operations
for the fourth quarter of 1997 amounted to approximately $455,000 for the Case
Communications Building.

The following is a summary of the Partnership's investments in the Case
Communications and Columbia Warehouse ground leases and mortgage loans:

<TABLE>
<CAPTION>
                                                       December 31,
                                                   1997           1996
                                               -------------  ------------
<S>                                            <C>            <C>

    Cash invested                              $ 13,585,000   $13,585,000

    Unamortized
      acquisition costs and fees, net                12,755        18,677

    Accrued ground lease and
      mortgage loan receivables                      92,467        92,467

    Sale of Collateral (Columbia Warehouse)      (1,213,375)            -

    Valuation allowance for
      impaired mortgage loans                      (800,000)     (800,000)

    Transfer to wholly-owned property
    (Case Communications Building)              (11,676,847)            -
                                               ------------   -----------
                                               $          -   $12,896,144
                                               ============   ===========
</TABLE>

     Sale of Elkridge Buildings
     --------------------------

     One of the two Elkridge buildings was sold on May 14, 1996.  The second
building was sold on December 20, 1996.  The net proceeds received by the
Partnership were used to repay the ground lease investment and the carrying
value of the mortgage loan. Since the mortgage loan was impaired, its carrying
value had been previously reduced to estimated fair market value, less
anticipated costs of sale and thus no gain or loss on the sale was recognized.
The total valuation allowance was $476,377, including $91,377 provided in 1996,
which included a disposition fee of $70,848 payable to the advisor. On January
30, 1997, the Partnership made a capital distribution to the limited partners in
the aggregate amount of $2,233,755 ($55.96 per limited partnership unit).

     Sale of Susana Corporate Center
     -------------------------------

     The Susana Corporate Center in Los Angeles, California was sold on October
23, 1996. The net proceeds received by the Partnership were used to repay the
ground lease investment and the carrying value of the mortgage loan. Since the
mortgage loan was impaired, its carrying value had been previously reduced to
estimated fair market value, less anticipated costs of sale and thus no gain or
loss on the sale was recognized. The total valuation allowance was $2,604,332,
including $191,332 provided in 1996, which included a disposition fee of $87,000
payable to the advisor. On January 30, 1997, the

                                       12
<PAGE>

Partnership made a capital distribution to the limited partners in the aggregate
amount of $2,709,965 ($67.89 per limited partnership unit).

     Sale of Oxford Place
     --------------------

     The Oxford Place apartment complex in Grand Rapids, Michigan was sold on
December 29, 1993 and the entire net proceeds were received by the Partnership
in full satisfaction of its ground lease and mortgage loan investment and
related accrued interest.  The Partnership accrued a disposition fee payable to
the advisor of $172,425 in connection with the sale and made a capital
distribution of $2,000,241 ($50.11 per limited partnership unit) from sales
proceeds on July 28, 1994.

     Valuation Allowance
     -------------------

     The activity in the valuation allowance during 1996 and 1997, together with
the related recorded and carrying values of the impaired mortgage loans at the
beginning and end of each year, are summarized in the table below.

<TABLE>
<CAPTION>
                                       Recorded     Valuation      Carrying
                                        Value       Allowance       Value
                                     ------------  ------------  ------------
<S>                                  <C>           <C>           <C>

Balance at January 1, 1996            15,619,235    (3,898,000)   11,721,235
                                     ===========   ===========   ===========

Increase in estimated fair
  market value of collateral, net                       17,291        17,291

Sale of collateral (Columbia)         (5,712,147)    3,080,709    (2,631,438)
                                     -----------   -----------   -----------

Balance at December 31, 1996         $ 9,907,088   $  (800,000)  $ 9,107,088
                                     ===========   ===========   ===========

Transfer to wholly-owned
  property (Case
  Communications)                     (9,907,088)      800,000    (9,107,088)

Balance at December 31, 1997         $        --   $        --   $        --
                                     ===========   ===========   ===========
</TABLE>

Except for the effect of the mortgage loan restructuring, the average recorded
value of the impaired mortgage loans did not differ materially from the balances
at the end of each period.  As a result of the restructuring, the valuation
allowance of $800,000 was charged off against the basis of the property
investment at the conversion date.


NOTE 4 - INVESTMENTS IN PROPERTIES
----------------------------------

Willows Shopping Center, Concord, California


     The Willows Shopping Center investment (the "Willows"), acquired in
1984, was owned jointly with an affiliate of the Partnership (the "Affiliate");
the Partnership had a 75% ownership share.  The ground lessee/mortgagor stopped
paying interest on the mortgage loan as of March 1990.  As a result, the
Partnership and its Affiliate began foreclosure proceedings to take possession
of the property.  A protracted series of legal interactions ensued, including
the filing of an involuntary bankruptcy petition by the second leasehold
mortgagee.  In June 1991, the Partnership and its Affiliate sold the mortgage
note to the original owner of the Willows, which in turn undertook and completed
the foreclosure action.  The Partnership and its Affiliate received a new
mortgage note; the principal related to the Partnership's share was $11,147,406.
The note bore interest at 9.323% per annum payable monthly, however, it could
accrue with interest compounded at 11%.  The loan had a maturity date of June
18, 2001.  The original owner also assumed the ground lease.  The ground lease
provided for annual rental payments to the Partnership of $412,500. Rental
payments were accruable through June 1996, with interest compounding at 11%,
however, the Partnership had permitted additional accrual beyond that date as it

                                       13
<PAGE>

evaluated various alternatives. The ground lease also provided for participation
rentals at 70% of gross revenues in excess of a base amount to the Partnership
and its Affiliate.

     In connection with a major renovation of the property, on January 1,
1995, the Partnership and its Affiliate committed to make a construction loan to
the ground lessee in the amount of $2,500,000.  This loan was also accounted for
as an investment in property.  The Partnership's share was $1,875,000, of which
$927,540 had been funded as of December 31, 1996.  Interest accrued at 11%
compounded monthly. Debt service payments began on January 1, 1996, including
principal payments based upon a 15-year amortization schedule.  In addition, the
ground lease was amended whereby after January 1, 1996, the Partnership and the
Affiliate could, at their sole discretion, offer the entire property for sale.

     On September 18, 1997, the Willows Shopping Center was sold to an
institutional buyer (the "Buyer") unaffiliated with the Partnership.  The
selling price was determined by arm's length negotiations between the
Partnership and its Affiliate and the Buyer. The total sales price was
$28,575,000. The Partnership received its share of the net proceeds totaling
$21,027,944, after closing costs, and recognized a gain of $3,322,455 ($82.40
per limited partnership unit). A disposition fee of $642,937 was accrued but not
paid to AEW. On October 30, 1997, the Partnership made a capital distribution of
$21,037,856 ($527.04 per limited partnership unit) from the proceeds of the sale
and reserves.

Case Communications Building, Columbia Maryland
-----------------------------------------------

     As described in Note 3, the Partnership previously held the Case
Communications Building investment as a combination ground lease/mortgage loan.
As a result of a restructuring of this investment in October 1997, the
Partnership acquired virtually the same risks and potential rewards of ownership
of the property would entail. Accordingly, in October 1997, the Partnership
commenced accounting for this investment as an owned property.

At December 31, 1997, the Case Communications Building Property investment is
comprised of the following:

<TABLE>
<S>                                         <C>
          Land                              $ 2,581,367
          Building and Other Assets, net      9,079,119
                                            -----------
          Total  Property                   $11,660,486
                                            ===========
</TABLE>

The buildings and improvements are being depreciated over 30 years using the
straight-line method.


NOTE 5 - INCOME TAXES
---------------------

     The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
                                        Year ended December 31,
                              ---------------------------------------
                                   1997           1996       1995
                              ------------   -----------   ----------
<S>                           <C>            <C>           <C>

Net income per financial
  statements                  $  6,687,557   $ 3,108,675   $1,710,797
Timing differences:
  Ground rent and mortgage
   loan interest (1)             1,208,197     1,800,239    1,779,246
  Valuation allowances                  --        17,291    1,428,000
  Loss on sale                 (11,764,860)   (3,919,175)          --
                              ------------   -----------   ----------

Taxable income (loss)         $ (3,869,106)  $ 1,007,030   $4,918,043
                              ============   ===========   ==========
</TABLE>
(1)  Represents additional contractual revenue recognized for tax purposes
     related to the Willows Shopping Center, Elkridge, and Susana Corporate
     Center.

                                       14
<PAGE>

NOTE 6 - PARTNERS' CAPITAL
--------------------------

     Allocations of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partner.  Cash distributions are made
quarterly.

     Net sales proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partner.  As a result of such transactions the
adjusted capital contribution per limited partnership unit was reduced from
$1,000 to $940 during 1985 and further reduced to $889.89 during 1994.  Income
from a sale is allocated in proportion to the distribution of related proceeds,
provided that the general partner is allocated at least 1%.  Income or losses
from a sale, if there are no residual proceeds after the repayment of the
related debt, will be allocated 99% to the limited partners and 1% to the
general partner.


NOTE 7 - SUBSEQUENT EVENT
-------------------------

     Distributions of cash from operations relating to the quarter ended
December 31, 1997 were made on January 29, 1998 in the aggregate amount of
$365,704 ($9.07 per limited partnership unit).

                                       15
<PAGE>

                                Schedule III 97

                    NEW ENGLAND LIFE PENSION PROPERTIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                                                                    SCHEDULE III
                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                            AS OF DECEMBER 31, 1997


<TABLE>
<CAPTION>

                                            Initial Cost to Partnership          Costs Subsequent to Acquisitions
                                          --------------------------------   -----------------------------------------
                                                            Land                                    Adjustment in
                             Encum-                      Buildings &          Building &           Land Investment
Description                  brances       Land         Improvements         Improvements        due to Restructuring
-------------------------    ----------   -----------   ------------------   -----------------   ---------------------
<S>                          <C>          <C>           <C>                  <C>                 <C>
Industrial
 Buildings
 Columbia, Maryland           Note A        2,618,087           0               9,152,119                (36,720)
                              ----------------------------------------------------------------------------------------
           Total                           $2,618,087          $0              $9,512,119
                              ========================================================================================
</TABLE>

<TABLE>
<CAPTION>
                               Gross amount at which
                             Carried at Close of Period
                             ----------------------------
                                                                              Accumulated
                                            Buildings &                      Depreciation         Date        Depreciable
Description                     Land        Improvements       Total        & Amortization      Acquired          Life
-------------------------    -----------   --------------   -----------   -----------------   -------------   --------------
<S>                          <C>           <C>              <C>           <C>                 <C>
Industrial
 Buildings
 Columbia, Maryland            2,581,367     9,152,119       11,733,486          (73,000)       05/02/85          --
                              ----------   --------------   -----------   -----------------   -------------   --------------
          Total               $2,581,367    $9,152,119      $11,733,486         $(73,000)
                              ==========    =============   ===========   =================   =============   ==============
</TABLE>
          Notes:

     (A)  All senior mortgages on the properties are held by New England
          Life Pension Properties II

     (B)  Additions in 1997 relate to Mortgage loan restructuring described in
Footnote-3 in Notes to the Financial Statements

<TABLE>
<CAPTION>
<S>                                                                    <C>                 <C>             <C>
Reconciliation of real estate owned:                                      1995                1996             1997

          Balance at beginning of period                               $21,318,333         $22,565,670      $ 22,460,406
               Acquisitions                                              1,247,337           2,049,486         9,115,399
               Dispositions                                                      0          (2,154,750)      (19,854,319)
                                                                      ------------         -----------      ------------
          Balance at end of period                                     $22,565,670         $22,460,406      $ 11,733,486
                                                                      ============         ===========      ============

          Accumulated depreciation
             at beginning of year                                      $ 1,740,992         $ 2,299,292         2,938,527
          Depreciation expense                                             555,128             636,063           553,523
          Amortization expense                                               3,172               3,172             3,172
          Dispositions                                                                                        (3,422,222)

          Accumulated depreciation at end of year:                     $2,299,292          $2,938,527             73,000
                                                                     ------------         -----------       ------------
</TABLE>

                                       16
<PAGE>

                                Schedule IV 97

03/25/98             NEW ENGLAND LIFE PENSION PROPERTIES II
                       A REAL ESTATE LIMITED PARTNERSHIP

                         MORTGAGE LOANS ON REAL ESTATE            SCHEDULE IV
                            AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>

                                                   Final          Periodic
                                 Interest         Maturity        Payment           Prior        Face Amount
Description                        Rate            Date            Terms            Liens        of Mortgage
-------------------------      -------------      ---------      ------------      -------      ---------------
<S>                            <C>                <C>            <C>
Research and Development
  Buildings                           9.50%                        Interest           --          8,814,621
  Columbia, Maryland           (See Note 3)        05/01/95         Monthly
                                                                   Principal
                                                                  at Maturity

                                     14.00%                        Interest            --         1,000,000
                               (See Note 3)        05/01/95         Monthly
                                                                   Principal
                                                                  at Maturity
                               -------------      ---------      ------------      -------      ---------------
     Total                                                                                        $9,814,621
                               =============      =========      ============      =======      ===============
</TABLE>

<TABLE>
<CAPTION>
                                                    Valuation
                                                    Allowance          Accrued                            Carrying
                                Disposition        for Impaired        Interest        Reclass (1)        Amount of
Description                                       Mortgage Loans      Receivable                          Mortgage
-------------------------      -------------      --------------      ------------     --------------     ---------
<S>                            <C>                <C>                 <C>              <C>                <C>
Research and Development
  Buildings
  Columbia, Maryland                  --             (800,000)           92,467          (8,107,088)           $0



                                 (1,000,000)                --               --                                $0



                               -------------      --------------      ------------     --------------     ---------
                                $(1,000,000)        $(800,000)          $92,467         $(8,107,088)           $0
                               =============      ==============      ============     ==============     =========
</TABLE>

<TABLE>
<CAPTION>
                                                         1995                 1996                 1997
<S>                                                  <C>                  <C>                  <C>
Balance at beginning of period                        $14,126,658          $12,691,267          $10,169,588
Reclass of accrued interest receivable                        --                92,467
Valuation allowance for impaired mortgage loans        (1,428,000)              17,291
Amortization                                               (7,391)                   0
Reclass to wholly-owned property                              --                   --            (8,107,088)
Dispositions                                                                (2,631,437)          (2,062,500)
                                                      ------------         -----------          -----------
Balance at end of period                              $12,691,267          $10,169,588                   $0
                                                      ------------         -----------          -----------
</TABLE>

Notes:
/(1)/  Represents the reclass of the Partnership's mortgage loan investment to
Property (see Footnote - 3 in Notes to Financial Statement)

                                       17
<PAGE>

                             FINANCIAL STATEMENTS
                                  INDEX NO. 2

                   AUDITOR'S REPORT AND FINANCIAL STATEMENTS

                 OF M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
             (REFERRED TO ELSEWHERE HEREIN AS CASE COMMUNICATIONS)



Independent Auditor's Report of Wolpoff & Company, LLP


Balance Sheets - December 31, 1997 and 1996

Statements of Income - For the Years Ended
  December 31, 1997, 1996 and 1995

Statements of Partners' Capital - For the Years Ended
  December 31, 1997, 1996 and 1995

Statements of Cash Flows - For the Years Ended
  December 31, 1997, 1996 and 1995

Notes to Financial Statements

                                       18
<PAGE>

                  M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP

                               FINANCIAL REPORT

                               DECEMBER 31, 1997
<PAGE>

                  M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                  ------------------------------------------

                                   CONTENTS
                                   --------

                               DECEMBER 31, 1997
                               -----------------

ACCOUNTANT'S REVIEW REPORT                                              1

FINANCIAL STATEMENTS

  Statement of Assets, Liabilities, and Partners' Capital
    - Income Tax Basis                                                2 - 3

  Statement of Revenue and Expenses - Income Tax Basis                  4

  Statement of Changes in Partners' Capital - Income Tax Basis          5

  Statement of Cash Flows - Income Tax Basis                            6

  Notes to Financial Statements                                       7 - 9

ACCOUNTANTS REPORT ON SUPPLEMENTARY INFORMATION                         10

SUPPLEMENTARY INFORMATION

  Schedule of Supplemental Ground Rent Calculation                      11

  Schedule of Changes in Partners' Capital - Income Tax Basis           12
<PAGE>

                            WOLPOFF & COMPANY, LLP

To the Partners
M.O.R. XXIX Associates Limited Partnership
Columbia, Maryland

We have reviewed the accompanying statement of assets, liabilities, and
partners' capital - income tax basis of M.O.R. XXIX Associates Limited
Partnership as of December 31, 1997 and 1996, and the related statements of
revenue and expenses - income tax basis, changes in partners' capital - income
tax basis, and cash flows -income tax basis for the years ended December
31, 1997, 1996, and 1995, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of M.O.R. XXIX Associates Limited
Partnership.

A review consists principally of inquiries of Partnership personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

As described in Note 1, these financial statements were prepared on the basis of
accounting the Partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with the basis of accounting described in Note 1.


                                   /s/ Wolpoff & Company, LLP

                                   WOLPOFF & COMPANY, LLP

Baltimore, Maryland
January 9, 1998


352480           CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

        200 SAINT PAUL PLACE . SUITE 2300 .  BALTIMORE, MARYLAND 21202
                      (410) 837-3770 . FAX (410) 752-2369

   P.O. BOX 470 . 1301 WEST WASHINGTON STREET . HAGERSTOWN, MARYLAND 21741
                      (301) 733-7200 . FAX (301) 797-3153

--------------------------------------------------------------------------------
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

   STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL - INCOME TAX BASIS
   --------------------------------------------------------------------------


                                     ASSETS
                                     ------
<TABLE>
<CAPTION>

                                                            December 31,
                                                     -----------------------
                                                        1997         1996
                                                     ----------   ----------
<S>                                                  <C>          <C>
PROPERTY, AT COST - Notes 1, 3 and 6
  Building and Improvements                          $4,532,735   $4,532,735
  Tenant Improvements                                 4,343,486    4,343,486
  Deferred Costs                                      1,078,229    1,026,429
                                                     ----------   ----------
                                                      9,954,450    9,902,650
  Less Accumulated Depreciation and Amortization      6,616,056    6,051,751
                                                     ----------   ----------

     PROPERTY, NET                                    3,338,394    3,850,899
                                                     ----------   ----------

OTHER ASSETS
  Cash and Cash Equivalents - Notes 1 and 7               6,162        2,612
  Restricted Escrow Funds - Note 7                      170,070       47,204
  Receivable, Affiliates - Note 4                        95,175      100,040
  Tenant Receivables                                     27,262       48,207
                                                     ----------   ----------

     TOTAL OTHER ASSETS                                 298,669      198,063
                                                     ----------   ----------
                                                     $3,637,063   $4,048,962
                                                     ==========   ==========

</TABLE>
------------

See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.



                                      -2-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

   STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL - INCOME TAX BASIS
   --------------------------------------------------------------------------

                       LIABILITIES AND PARTNERS' CAPITAL
                       ---------------------------------
<TABLE>
<CAPTION>
                                                December 31,
                                           ------------------------
                                              1997          1996
                                           -----------   ----------
<S>                                        <C>           <C>
LIABILITIES

  Mortgages Payable - Note 2               $ 9,814,621   $9,814,621
  Accrued Interest Payable                      77,699       92,467
  Accounts Payable and Accrued Expenses         17,196       37,067
  Accrued Ground Rent                          103,552       38,361
  Payable to Tenant                                -0-        4,405
                                           -----------  -----------

     TOTAL LIABILITIES                      10,013,068    9,986,921

COMMITMENTS AND CONTINGENCY - Note 3

PARTNERS' CAPITAL (DEFICIT)                 (6,376,005)  (5,937,959)
                                           -----------  -----------
                                           $ 3,637,063  $ 4,048,962
                                           ===========  ===========
</TABLE>

--------------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.



                                      -3-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

              STATEMENT OF REVENUE AND EXPENSES - INCOME TAX BASIS
              ----------------------------------------------------


<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                            ------------------------------------
                                                               1997         1996        1995
                                                            ----------   ----------   ----------
<S>                                                         <C>          <C>          <C>
REVENUE - Note 5
 Rental Income
      Base Rent                                             $2,071,702   $1,931,810   $1,940,000
      Special Rent                                                 -0-      160,000      160,000
      Operating Expense Reimbursement (Net of Expenses)        180,193      180,765      183,934
                                                            ----------   ----------   ----------
                                                             2,251,895    2,272,575    2,283,934
     Interest and Other Income                                   8,002        7,910       28,533
                                                            ----------   ----------   ----------

           TOTAL REVENUE                                     2,259,897    2,280,485    2,312,467
                                                            ----------   ----------   ----------
OPERATING EXPENSES
     Property Taxes                                            187,305      186,202      187,073
     Management Fees - Note 4                                   84,606       80,963       83,164
     Legal and Accounting                                        7,584        3,767        4,190
     General and Administrative                                  6,052          708        4,038
     Reimburse to Tenant                                           -0-      100,037          -0-
     Bad Debts                                                     -0-          541          -0-
                                                            ----------   ----------   ----------

      TOTAL OPERATING EXPENSES                                 285,547      372,218      278,465
                                                            ----------   ----------   ----------
OPERATING INCOME                                             1,974,350    1,908,267    2,034,002
                                                            ----------   ----------   ----------

MORTGAGE INTEREST AND
 GROUND RENT - Notes 2 and 3
  Mortgages                                                    932,389    1,109,608    1,109,608
  Ground Rent                                                  894,163      713,435      718,830
                                                            ----------   ----------   ----------
                                                             1,826,552    1,823,043    1,828,438
                                                            ----------   ----------   ----------

INCOME BEFORE DEPRECIATION AND AMORTIZATION                    147,798       85,224      205,564

DEPRECIATION AND AMORTIZATION                                 (564,305)    (507,436)    (525,263)
                                                            ----------   ----------   ----------
NET LOSS                                                    $ (416,507)  $ (422,212)  $ (319,699)
                                                            ----------   ----------   ----------
</TABLE>

------------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.



                                      -4-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

          STATEMENT OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
          ------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                             ------------------------------------------
                                                 1997             1996          1995
                                             -----------      -----------   -----------
<S>                                          <C>           <C>              <C>
CAPITAL CONTRIBUTIONS                        $     1,000      $     1,000   $     1,000
                                             -----------      -----------   -----------
REDEMPTION OF PARTNER'S INTEREST - Note 6        259,800          259,800       259,800
                                             -----------      -----------   -----------
DISTRIBUTIONS
  Prior Years                                 (1,126,670)        (914,624)     (744,927)
  Current Year                                   (21,539)        (212,046)     (169,697)
                                             -----------      -----------   -----------
                                              (1,148,209)      (1,126,670)     (914,624)
                                             -----------      -----------   -----------
ACCUMULATED LOSSES
  Prior Years                                 (5,072,089)      (4,649,877)   (4,330,178)
  Current Year                                  (416,507)        (422,212)     (319,699)
                                             -----------      -----------   -----------
                                              (5,488,596)      (5,072,089)   (4,649,877)
                                             -----------      -----------   -----------
TOTAL PARTNERS' DEFICIT                     $ (6,376,005)     $(5,937,959)  $(5,303,701)
                                            ============      ===========   ===========
</TABLE>

-------------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.



                                      -5-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

                   STATEMENT OF CASH FLOWS - INCOME TAX BASIS
                   ------------------------------------------

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                         -----------------------------------
                                                            1997         1996        1995
                                                         ---------    ---------    ---------
<S>                                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss                                               $(416,507)   $(422,212)   $(319,699)
                                                         ---------    ---------    ---------
  Adjustments to Reconcile Net Loss to
    Net Cash Provided by Operating Activities
     Depreciation and Amortization                         564,305      507,436      525,263
     Change in Tenant Receivables                           20,945      (41,101)      75,085
     Change in Accounts Payable and Accrued Expenses       (19,871)       4,777      (52,564)
     Change in Payable to Tenant                            (4,405)     (45,659)      29,280
     Decrease in Accrued Interest Payable                  (14,768)         -0-          -0-
     Change in Accrued Ground Rent                          65,191       37,043      (41,506)
                                                         ---------    ---------    ---------
      Total Adjustments                                    611,397      462,496      535,558
                                                         ---------    ---------    ---------

         Net Cash Provided by Operating Activities         194,890       40,284      215,859
                                                         ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Deferred Costs                                           (51,800)     (10,360)     (39,278)
  Change in Property Tax and Insurance Fund               (122,866)     (45,940)      39,086
  Change in Receivable, Affiliates                           4,865      397,122     (120,616)
  Decrease in Refundable Deposit                               -0-     (299,963)         -0-
                                                         ---------    ---------    ---------

        Net Cash Provided (Used) by Investing Activities  (169,801)      40,859     (120,808)
                                                         ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Distributions to Partners                                (21,539)    (212,046)    (169,697)
                                                         ---------    ---------    ---------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS                                 3,550     (130,903)     (74,646)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                 2,612      133,515      208,161
                                                         ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, END OF YEAR                   $   6,162    $   2,612    $ 133,515
                                                         ---------    ---------    ---------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
  Cash Paid During the Year for Interest                 $ 947,157   $1,109,608    $1,109,608
                                                         =========   ==========    ==========
</TABLE>
-----------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.

                                      -6-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------

                               DECEMBER 31, 1997
                               -----------------



Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization
         ------------

         M.O.R. XXIX Associates Limited Partnership (the Partnership) was formed
         in November 1984 pursuant to an agreement under the Maryland Uniform
         Limited Partnership Act. The Partnership owns and operates an office
         building in Howard County, Maryland, containing approximately 160,000
         square feet of leasable area. The building was placed into service on
         March 1, 1986, and has been 100% occupied since that date (see Note 5).

         Income Tax Basis
         ----------------

         The Partnership follows the policy of preparing its financial
         statements on the basis utilized for income tax reporting.
         Consequently, the financial statements are not prepared in accordance
         with generally accepted accounting principles.

         Cash and Cash Equivalents
         -------------------------
         The Partnership considers all highly liquid debt instruments purchased
         with a maturity of 3 months or less to be cash equivalents.

         The majority of the partnership's cash is held in financial
         institutions with insurance provided by the Federal Deposit Insurance
         Corporation (FDIC) up to $100,000. Periodically during the year, an
         account balance exceeded the FDIC insurance limitation.

         Interest Expense
         ----------------
         Interest expense and real property taxes incurred during the
         construction period were capitalized as a deferred cost and were
         amortized over a 10-year period.

         Depreciation
         ------------
         All property is recorded at cost Building costs are being depreciated
         using the Accelerated Cost Recovery System (ACRS) (19 years, straight-
         line) for costs incurred prior to December 31, 1986, and the Modified
         Accelerated Cost Recovery System (MACRS) (31.5 and 39 years, straight-
         line) for costs incurred after 1986.

         Amortization
         ------------
         Various deferred costs are being amortized as follows:
<TABLE>
<CAPTION>

                                                     Amortization
                                           Amount       Period
                                          --------  ---------------
<S>                                       <C>       <C>
              Leasing Commissions          478,120  5-10 Years
              Permanent Mortgage Costs     114,980  Fully Amortized
                                          --------

                                          $593,100
                                          ========
</TABLE>



                                      -7-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                               DECEMBER 31, 1997
                               -----------------



Note l -  Income Taxes
          ------------
(Cont.)   Partnerships are not subject to income taxes. The partners are
          required to report their respective shares of partnership income or
          loss and other tax items on their income tax returns.

          Use of Estimates
          ----------------
          The preparation of financial statements requires management to make
          estimates and assumptions that affect certain reported amounts and
          disclosures.


Note 2 -  FINANCING

          Mortgage Debt
          -------------
          Mortgage financing was provided by New England Life Pension Properties
          II in the amount of $9,814,621, through two separate nonrecourse
          mortgages. The first mortgage originated May 1, 1985, in the amount of
          $8,814,621 and an interest rate of 11%. The second mortgage was fully
          funded during 1986 in the amount of $1,000,000; the interest rate was
          14%. Effective January 1, 1997, the mortgages were amended to reduce
          the interest rate to 9.5% and extend the maturity dates to December
          31, 1997. At December 31, 1997, the mortgage automatically extended to
          an additional year at the same terms. Pertinent information regarding
          these mortgages is as follows:

<TABLE>
<CAPTION>

                                                  First Mortgage    Second Mortgage
                                                  --------------    ---------------
<S>                                               <C>               <C>
         Outstanding Balance, December 31,1997      $8,814,621         $1,000,000
         Interest Rate                                 9.5%               9.5%
         Payment Constant                         Interest Only      Interest Only
         Original Term                              10 Years            9 Years
         Maturity Date                            December 31,1997   December 31,1997
         Amount Due at Maturity                      $8,814,621         $1,000,000

</TABLE>

Note 3 -  LAND SALE AND LEASEBACK

          In 1985 the Partnership sold its land to New England Life Pension
          Properties II for $2,385,379 and entered into a land lease with a term
          of 60 years. Effective January 1, 1997, the annual base is $226,611.
          The lease provides for supplemental rent equal to 80% of the gross
          receipts of the property, in excess of $1,237,500. Prior to January
          1, 1997, the annual base was $262,392, and the supplemental rent was
          65.864% of gross receipts in excess of $1,247,500. For this purpose,
          the special tenant rent amounting to $160,000 annually is not included
          in gross receipts for 1996 and 1995.

          The remaining minimum land lease payments total $11,103,939 for 1998
          through 2045. The total ground rent for 1997, 1996, and 1995 is as
          follows:
<TABLE>
<CAPTION>

                                    1997      1996      1995
                                  --------  --------  --------
<S>                               <C>       <C>       <C>

            Basic Annual Rent     $226,611  $262,392  $262,392

            Supplemental Rent*     667,552   451,043   456,438
                                  --------  --------  --------
                                  $894,163  $713,435  $718,830
                                  --------  --------  --------

</TABLE>

            * See Schedule of Supplemental Ground Rent Calculation.



                                      -8-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                               DECEMBER 31, 1997
                               -----------------

Note 4 - RELATED PARTY TRANSACTIONS



         The Partnership has various contractual arrangements with Manekin
         Corporation, an entity affiliated with certain partners.

         Management Fees
         ---------------
         The Partnership has entered into an agreement with Manekin Corporation
         to act as management agent for the property. The management agreement
         provided for management fees equal to 1% of rents and tenant expense
         billings. On January 1, 1996, the management fee was increased to 3%.
         For 1997, 1996, and 1995, management fees of $84,606, $80,963, and
         $83,164, respectively, were incurred.

         Receivable, Affiliates
         ----------------------
         The Partnership participates in a central disbursing cash account with
         various entities affiliated with the Partnership. As of December 31,
         1997 and 1996, the Partnership's share of the cash account was $93,094
         and $100,040, respectively, and is reflected as receivable, affiliates.
         The funds earn interest at the applicable federal rate. As of December
         31, 1997, other receivables from affiliates amounted to $2,081.

Note 5 - TENANT LEASE

         The building has been 100% leased to the U.S. Government since January
         1, 1990. The tenant has been negotiating a new lease with the landlord
         since October 31, 1996. The tenant pays base rent plus operating
         expenses and real estate taxes.

Note 6 - REDEMPTION OF PARTNER'S INTEREST

         On December 18, 1986, the Partnership redeemed a partner's interest in
         the partnership. Concurrently, the basis of the Partnership's real
         property was adjusted pursuant to (S)734 of the Internal Revenue Code
         (IRC). The increase in basis was $259,800.

Note 7 - CASH RESTRICTIONS

         On December 30, 1991, the Manekin Organization and the partners of the
         Partnership entered into a restructure and loan agreement with
         Mercantile-Safe Deposit & Trust Company (Mercantile). As a result, the
         organization entered into a lockbox arrangement with Mercantile whereby
         all rent payments are received directly by the bank. These funds are
         held for payment of monthly expenses including escrow amounts.
         Additionally, at its discretion, Mercantile may apply the remaining
         available funds to reduce debt owed to Mercantile, which is guaranteed
         by the Partnership and the partners.



                                      -9-
<PAGE>

To the Partners
M.O.R. XXIX Associates Limited Partnership
Columbia, Maryland


                ACCOUNTANTS REPORT ON SUPPLEMENTARY INFORMATION
                -----------------------------------------------

The accompanying supplementary information contained on pages 11 and 12 is
presented for purposes of additional analysis. Such information has not been
subjected to the same inquiries and analytical procedures applied in the review
of the basic financial statements, but has been compiled from information that
is the representation of the management of M.O.R. XXIX Associates Limited
Partnership, without audit or review. Accordingly, we do not express an opinion
or any other form of assurance on such supplementary information.


                                   /s/ Wolpoff & Company, LLP

                                   WOLPOFF & COMPANY, LLP

Baltimore, Maryland
January 9, 1998


                                      -10-
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
                   ------------------------------------------

                SCHEDULE OF SUPPLEMENTAL GROUND RENT CALCULATION
                ------------------------------------------------
<TABLE>
<CAPTION>


                                                   Year Ended December 31,
                                          --------------------------------------
                                             1997          1996          1995
                                          ----------    ----------    ----------
<S>                                       <C>           <C>           <C>

GROSS RENT RECEIPTS                       $2,072,000    $1,931,810    $1,940,000

BASE                                       1,237,560     1,247,000     1,247,000
                                          ----------    ----------    ----------
GROSS RENT RECEIPTS IN EXCESS OF BASE        834,440       684,810       693,000

APPLICABLE PERCENTAGE                         80.000%       65.864%       65.864%
                                          ----------    ----------    ----------

SUPPLEMENTAL GROUND RENT                  $  667,552    $  451,043    $  456,438
                                          ----------    ----------    ----------

</TABLE>

----------
See Accountant's Report on Supplementary Information.



                                     - 11 -
<PAGE>

                   M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHlP
                   ------------------------------------------

          SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
          -----------------------------------------------------------

                          YEAR ENDED DECEMBER 31, 1997
                          ----------------------------
<TABLE>
<CAPTION>

                                          Partners'                               Partners'
                             Partners      Capital         Current Year            Capital
                             Ownership    (Deficit)   ------------------------    (Deficit)
                             Percentage   12/31/96     Distributions   Net Loss    12/31/97
                            -----------  -----------   -------------  ---------   ------------
<S>                         <C>          <C>           <C>            <C>         <C>
GENERAL PARTNER
  RA & DM, Inc.                    1.00% $   (59,380)  $        (215) $ (4,165)   $    (63,760)

LIMITED PARTNER
  MRU Limited Partnership         99.00%  (5,878,579)        (21,324)  (412,342)    (6,312,245)
                            -----------  -----------   -------------  ---------   ------------
                                 100.00% $(5,937,959)  $     (21,539) $(416,507)  $ (6,376,005)
                            ===========  ===========   =============  =========   ============
</TABLE>
-----------------------
See Accountants Report on Supplementary Information.



                                     - 12 -
<PAGE>

                                 EXHIBIT INDEX
                                 -------------
<TABLE>
<CAPTION>

Exhibit                                                                            Page
Number                                    Exhibit                                 Number
---------  ---------------------------------------------------------------------  ------
<C>        <S>                                                                     <C>

 4.        Amended and Restated Agreement of Limited Partnership                    *
           of New England Life Pension Properties II; A Real Estate
           Limited Partnership (filed as Exhibit 28A to Form 8-K dated
           June 15, 1984, as filed with the Commission on June 25, 1984).

10A.       Form of Escrow Deposit Agreement among the Registrant,                   *
           NEL Equity Services Corporation and The Bank of Boston
           (filed as Exhibit 10A to the Registrant's Registration
           Statement on Form S-11, file no. 2-86659 [the "Registration
           Statement"]).

10B.       Form of Advisory Contract between the Registrant and                     *
           Copley Real Estate Advisors, Inc. (filed as Exhibit 10B
           to the Registration Statement).

10C.       Confirmatory Ground Sublease, dated as of June 29, 1984,                 *
           between the Registrant, as Lessor, and Columbia Warehouse
           Limited Partnership ("Columbia"), as Lessee [filed as
           Exhibit 10D to Post-Effective Amendment No. 1 to the
           Registration Statement, dated August 23, 1984
           ("Post-Effective Amendment No. 1")].

10D.       Promissory Note, dated June 29, 1984, in the principal amount            *
           of $1,062,500 from Columbia to the Registrant (filed as
           Exhibit 10E to Post-Effective Amendment No. 1).

10E.       Deed of Trust, dated June 29, 1984, by and between Columbia              *
           and the Trustees named therein (filed as Exhibit 10F to Post-
           Effective Amendment No. 1.).

10F.       Confirmatory Ground Lease, dated as of June 29, 1984                     *
           between the Registrant, as Lessor, and Dorsey  Associates
           ("Dorsey"), as Lessee (filed as Exhibit 10G to Post-
           Effective Amendment No. 1.).

10G.       Promissory Note, dated June 29, 1984, in the principal amount of         *
           $2,062,500 from Dorsey to the Registrant (filed as Exhibit 10H
           to Post Effective Amendment No. 1).

10H.       Deed of Trust, dated June 29, 1984, by and between Dorsey and            *
           the Trustees named therein (filed as Exhibit 10I to Post- Effective
           Amendment No. 1).

10I.       Deed of Trust and Security Agreement, dated as of July 30, 1984,         *
           among Willows Concord Venture, as Grantor, El Camino
           Title Company, as Trustee, and New England Life Pension
           Properties; A Real Estate Limited Partnership and the Registrant, as
           Beneficiaries (filed as Exhibit 28.1 to Form 8-K dated July 29, 1984,
           as filed with the Commission on August 4, 1984).

10J.       Ground Lease dated as of July 30, 1984, between Willows Concord          *
           Venture, as Lessee, and New England Life Pension Properties; A
           Real Estate Limited Partnership and the Registrant, as Lessors
           (filed as Exhibit 28.2 to Form 8-K dated July 29, 1984, as
           filed with the Commission on August 14, 1984).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

Exhibit                                                                            Page
Number                                    Exhibit                                 Number
---------  ---------------------------------------------------------------------  ------
<C>        <S>                                                                    <C>

10K.       Ground Lease dated as of December 21, 1984, between the                 *
           Registrant, as Lessor, and Susana Partners '82 ("Susana") as Lessee
           (filed as Exhibit 10(i)a to Form 8-K dated February 4, 1985, as
           filed on or about February 15, 1985, as amended).

10L.       Deed of Trust and Security Agreement dated as of December 21,           *
           1984, among the Registrant, as Grantee, Susana, as Grantor,
           and First American Title Insurance Company, as Trustee (filed as
           Exhibit 10(i)b to Form 8-K dated February 15, 1985, as amended).

10N.       Mortgage and Security Agreement, dated as of September 26, 1985,        *
           by and between Oxford Place Apartments Limited Partnership,
           Mortgagor, and the Registrant, Mortgagee, in the amount of $4,250,000.

10O.       Promissory Note, dated as of September 26, 1985, in the principal       *
           amount of $4,250,000 from the Registrant to Oxford Place Apartments
           Limited Partnership.

10P.       Ground Lease dated as of September 26, 1985 between the Registrant,     *
           as Landlord and Oxford Place Apartments Limited Partnership,
           as Tenant.

10Q.       Contract of Sale dated as of September 26, 1985, by and between         *
           Oxford Apartments Limited Partnership, Seller, and the Registrant,
           Purchaser.

10R.       Letter Agreement between New England Life Pension Properties;           *
           A Real Estate Limited Partnership, the Registrant and Willows
           Concord Venture dated June 14, 1991.

10S.       Promissory Note dated July 14, 1991 in the principal amount of          *
           $14,863,206.38 from Willows Concord Venture to New England
           Life Pension Properties; A Real Estate Limited Partnership
           and the Registrant.

10T.       Assignment of Note and Liens Including Deed of Trust dated as           *
           of June 13, 1991 by New England Life Pension Properties; A
           Real Estate Limited Partnership and the Registrant to Willows
           Concord Venture.

10U.       Assignment of VMS Loan Documents dated June 14, 1991 by                 *
           Willows Concord Venture to New England Life Pension Properties;
           A Real Estate Limited Partnership and the Registrant.

10V.       Deed of Trust and Security Agreement dated June 13, 1991 between        *
           Willows Concord Venture, as Trustor; Chicago Title Company,
           as Trustee; and New England Life Pension Properties; A Real
           Estate Limited Partnership and the Registrant, as Beneficiary.

10W.       Assignment of Leases and Rents dated June 13, 1991 by Willows           *
           Concord Venture to New England Life Pension Properties;
           A Real Estate Limited Partnership and the Registrant.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

Exhibit                                                                            Page
Number                                    Exhibit                                 Number
---------  ---------------------------------------------------------------------  ------
<C>        <S>                                                                    <C>

10X.       Amended and Completely Restated Ground Lease dated effective            *
           as of June 18, 1991 between Registrant, New England Life
           Pension Properties II; A Real Estate Limited Partnership
           and Willows Concord Venture.

10Y.       Amended and Restated Secured Promissory Note effective as of            *
           June 14, 1991, in the principal amount of $14,863,206.38 from
           Willows Concord Venture to the Registrant and New England Life
           Pension Properties II; A Real Estate Limited Partnership.

10Z.       Modification Agreement and First Amendment to Loan Documents dated      *
           August 13, 1991, by and between Willows Concord Venture, the
           Registrant and New England Life Pension Properties II; A Real
           Estate Limited Partnership.

10AA.      Modification Agreement and Second Amendment to Loan Documents           *
           dated September 12, 1991, by and between Willows Concord Venture,
           the Registrant and New England Life Pension Properties II; A Real
           Estate Limited Partnership.

10BB.      Modification Agreement and Third Amendment to Loan Documents            *
           dated October 15, 1991, by and between Willows Concord Venture,
           the Registrant and New England Life Pension Properties II; A Real
           Estate Limited Partnership.

10CC.      Fourth Amendment to Loan Documents dated December 17, 1992              *
           by and between Willows Concord Venture Registrant and New England
           Life Pension Properties II; A Real Estate Limited Partnership.

10DD.      Special Warranty Deed by and between Registrant, Grantor, and Oxford    *
           Place Apartments Limited Partnership, Grantee, dated December, 1993.

10EE.      Agreement to Cause Early Expiration of Term of Ground Lease by and      *
           between Oxford Place Apartments Limited Partnership and Registrant
           dated as of December 29, 1993.

10FF.      Discharge of Mortgage and Security Agreement executed by Registrant,    *
           dated December, 1993.

10GG.      Termination of Collateral Assignment of Lease or Leases executed by     *
           Registrant, dated December, 1993.

10HH.      Consent letter given by Registrant regarding sale of property dated     *
           December 29, 1993.

10II.      Construction Loan Agreement dated January 1, 1996 by and between        *
           Willows Concord Venture, A California Limited Partnership as Borrower,
           and New England Life Pension Properties II; A Real Estate Limited
           Partnership as Lender.

27.       Financial Data Schedule
</TABLE>

*    Previously filed and incorporated herein by reference.
<PAGE>

                                   SIGNATURES
                                   ----------


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              NEW ENGLAND LIFE PENSION PROPERTIES II;
                              A REAL ESTATE LIMITED PARTNERSHIP



Date:  March 31, 1998         By:    /s/ Wesley M. Gardiner, Jr.
                                     ---------------------------
                                     Wesley M. Gardiner, Jr.
                                     President of the General Partner



          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

     Signature                   Title                         Date
     ---------                   -----                         ----

                                 President
/s/   Wesley M. Gardiner, Jr.    Chief Executive Officer    March 31, 1998
----  -----------------------
      Wesley M. Gardiner, Jr.    and Director


                                 Vice President
 /s/  Pamela J. Herbst           and Director               March 31, 1998
----  -----------------------
      Pamela J. Herbst

                                 Vice President
 /s/  J. Grant Monahon           and Director               March 31, 1998
----  ----------------------
      J. Grant Monahon


/s/  James J. Finnegan           Vice President             March 31, 1998
---  -----------------------
     James J. Finnegan

                                 Treasurer and Principal
                                 Financial and
 /s/  Karin J. Lagerlund         Accounting Officer         March 31, 1998
----  ----------------------
      Karin J. Lagerlund